Out-of-pocket expense
A business cost an employee pays with their own money and then claims back from the company.
In short
- It is effectively an interest-free loan from the employee to the company.
- Reimbursement needs a receipt and a business purpose, like any other expense.
- Slow reimbursement is one of the most common complaints about expense processes.
An out-of-pocket expense is spending for the business that comes from the employee's personal funds, whether cash, a personal credit card or a debit card. The employee then submits the expense and is repaid, usually through an expense report.
Why they still happen
Even companies with corporate cards see out-of-pocket spending: an employee without a card, a merchant that only takes cash, a card that was declined or forgotten, or a small purchase that seemed not worth the hassle. For businesses without a card program, nearly all employee spending works this way.
The cost to employees
Until they are reimbursed, the employee is financing the company. For someone who travels a lot, that can mean thousands of dollars on a personal card, sometimes past the statement due date. Reimbursement that takes weeks, or a report returned for a missing detail, turns into a real grievance.
Handling them well
Out-of-pocket expenses need the same support as any other: a receipt, a category and a purpose. Paying them quickly, ideally within a week of approval and by direct deposit rather than cheque, is the single most noticeable improvement a finance team can make for employees.
Worked example
A card that didn't work
A project lead's company card is declined at a hardware store during an urgent site repair. They pay $187.35 on their personal card and photograph the receipt. The expense is approved the next day and reimbursed by direct deposit three days later, before their personal card statement closes.